ASML and the AI Machine

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The current enthusiasm for artificial intelligence, a phenomenon often described with a naiveté bordering on the alarming, is now extending its reach. It is no longer sufficient to speak of software and algorithms; the demand for the physical infrastructure – the machines that make the machines – is becoming plainly visible.

Like Intel, a company recently demonstrating a belated recovery, ASML (ASML 2.79%) has attracted investor attention. This is not necessarily an indication of inherent value, but rather a predictable consequence of a market eager for narratives of renewal. ASML, it should be understood, is the sole manufacturer of extreme ultraviolet (EUV) lithography machines, the complex and expensive devices required for producing the most advanced semiconductor chips. The company sells a relatively small number – around one hundred per quarter – making its fortunes acutely sensitive to shifts in demand, a cycle that operates at a different tempo than the broader semiconductor market.

Recent quarterly reports had been unremarkable, showing sluggish bookings. However, the stock price doubled in the last six months, fuelled by speculation that the semiconductor cycle was turning. The fourth quarter bookings confirmed this, though whether this represents genuine growth or merely a temporary inflation of expectations remains to be seen.

What the Numbers Reveal

The market’s reaction to ASML’s latest report was, predictably, erratic. An initial surge in pre-market trading quickly dissipated once regular trading commenced, a demonstration of the market’s inherent instability and its tendency to overreact. The figures themselves were straightforward enough: revenue increased by 6.6% to 7.58 billion euros, and earnings per share rose 7.3% to 7.34 euros. More significant, however, was the surge in bookings – 13.2 billion euros in the quarter, more than double the figure from the previous year, and a 48% increase for the year as a whole. This suggests a degree of future growth, though translating bookings into actual revenue is a process subject to numerous uncertainties.

Christophe Fouquet, ASML’s CEO, noted “a notable increase and acceleration of capacity expansion planning.” This is a carefully worded statement, implying intent rather than achievement. It takes ASML between twelve and eighteen months to convert bookings into revenue, a delay that should temper any excessive optimism. The company projects revenue of 34-39 billion euros for 2026, representing a growth of 14.7% at the midpoint. This is not a spectacular figure, but it is a figure nonetheless.

The announcement of 1,700 job cuts, presented as a streamlining measure, is a familiar refrain. Companies often justify such actions as necessary for innovation, but the underlying motive is invariably cost reduction.

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A Prudent Assessment

ASML’s position as the sole supplier of EUV equipment is undeniable. This creates a degree of market power, but it also carries a significant responsibility. The company is, in effect, a bottleneck in the production of advanced semiconductors, and its performance will inevitably influence the entire industry. The increasing proportion of EUV systems in ASML’s sales – from 38% in 2024 to 48% in 2025 – is a clear indicator of this trend.

The stock is, undeniably, more expensive than it was six months ago. The outlook for AI is uncertain, and the current enthusiasm may prove to be unsustainable. However, if the surge in bookings continues into 2026, the stock may indeed climb, particularly given the anticipated growth in AI demand. It is a gamble, certainly, but one that is increasingly favoured by those who believe in the inevitability of technological progress. A cautious approach, however, remains advisable. The market, as always, has a habit of punishing those who succumb to excessive optimism.

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2026-01-28 20:22